Friendship Central School District – Fund Balance and Reserves (2022M-55)

Issued Date
July 22, 2022

[read complete report - pdf]

Audit Objective

Determine whether the Friendship Central School District (District) Board of Education (Board) and District officials properly managed fund balance and reserves.

Key Findings

The Board and District officials did not properly manage fund balance and reserves. As a result, real property taxes were higher than necessary.

The Board and District officials:

  • Overestimated appropriations by a total of $2.3 million (8 percent) in the three fiscal years audited. This made it appear the District needed to use fund balance and reserves to close projected budget gaps. However, they were not used to fund operations.
  • Improperly restricted $246,000 in a debt reserve fund. The funds should be returned to the general fund.
  • Did not develop and adopt a comprehensive written multiyear financial plan.

As a result, as of June 30, 2021, the recalculated surplus fund balance totaled $2.5 million, exceeding the statutory limit by 20 percentage points. The Board and District officials also overfunded one general fund reserve by $111,000.

Key Recommendations

  • Adopt budgets that include reasonable estimates for appropriations, appropriated fund balance and reserve funds that will be used to fund operations.
  • Reduce surplus fund balance to comply with the statutory limit.
  • Return improperly restricted funds to general fund surplus fund balance in compliance with applicable statutes.

District officials generally agreed with our recommendations and indicated they plan to initiate corrective action.